When venture capitalists say “NO”—creative financing strategies & resources, by Ron Peterson
Download 1.2 Mb.
|
- Navigate this page:
- You need to prepare to make an SSO.
- Information on SSOs.
- Internet-based offerings.
- Advantages of a registered offering.
- You don’t have to undergo the agonies of a declining stock market.
- Chapter 9—PR and Your Elevator Speech
- What you get from a public relations effort.
- Keep letting people know what you’re all about.
- People want to invest and are looking for ideas.
- What you need for a PR campaign.
- PR validates your story.
Characteristics of small stock offerings. • The stage of development of your company is far less important than how you package your concept and deliver the message. • An SSO is markedly different from an ordinary stock peddled by a retail broker and failure to understand that distinction can lead to big problems in both the short and long term. • Liquidity is over-valued. People need to know that they should hold on to these shares for a few years while the company grows. Their eventual profit depends on your exit strategy, perhaps an IPO or acquisition. • Gurus Warren Buffett and Peter Lynch tell people the identical path to making money in the stock market. They both say to “ . . . find a product you like and think has a great future. Buy shares in the company that makes it and hold on for the long term.” This advice fits an SSO perfectly and is an intelligent remedy for the agony of looking at the stock market pages every day. • You need a marketing plan that has several different -approaches since you can’t be sure just what will actually work. • Treat the stock sale as a “product rollout” and never differentiate the stock from the company message. Always be talking about the products/services and the company and simply let people know about the stock. Don’t ever hard sell the stock or over-promise. • The Internet is a superb vehicle for SSOs, but maybe not the way you think. It’s fanciful to think that people will surf the Internet, download your prospectus, read it and send in money. That’s not how people act. The Internet is a way to deliver your prospectus cheaply (you don’t have to pay for printing or postage) and it is a way to tell the story of the company and its products. The Internet is really a vast incentive system and using it correctly is a key to success. • Build a team to launch the offering. Get everyone involved and solicit ideas from all your team members. • Keep the interests of your new shareholders uppermost in your mind. If you treat people right, not only is it ethical, they will do much more for you in the future. • Companies generally find that shareholders become ardent users of the company’s products so think inclusively about the number of your potential shareholders. This is a group that will become free marketing agents for you. • Don’t think that browbeating people on the telephone is the correct way to get your stock sold. People are not anywhere near as receptive to phone solicitations as they used to be and you need to use different communication vehicles. AT&T tells us that only one out of every four calls reaches the intended party on the first try. • Think about enlisting a professional PR firm or at least being creative in your approaches to people. Advertising works for established products to keep market share and stem competition but PR is the magic vehicle to launch your company and build a market position (see the next chapter). • Being first with a product or service is often one of the most powerful messages to solicit investors. Even if it is a conventional product think about re-packaging it as something novel. • Money tends to trickle in at the beginning of an offering period and cascade nearer the end. This may not be the case for you but plan on it anyway. You should try to create some kind of imperative so people sign up quickly for your shares instead of procrastinating. • Think “strategic partnering.” Many other companies may wish to associate with you for one reason or other and they can bring some heavy capital to the table. It’s a lot cheaper to form a relationship with you by buying stock than to try to copy the same idea in-house. Also, a licensing agreement is an expense while a stock purchase is a capital investment and can look much better on a balance sheet. • Think globally. You may find that people and companies in Italy or Korea may want to buy into your company and intelligent PR can get your message to them. Types of businesses that have used SSOs. e-Commerce Provider Data Mining Firm Publishing Entertainment Company Physician Care Network Graphics Design Firm Golf Course Sports Franchise Retail Store Automobile Leasing Agency Medical Supply Company Biomedical Company Pharmaceutical Firm Tire Processing Plant Restaurant Engineering Management Brewery Furnace Manufacturer High-Tech Company Coffee Brewing Equipment Manufacturer Energy Equipment Firm Travel Agency Physician’s Hosp. Org. Learning Center Commodities Firm Mortgage and Security Firm Environmental Consultant Engine Manufacturer Computer Company Electrical Vehicle Homebuilder Natural Food Supplier Musical Producer Bakery Renovator Building Supply Company Auto Dealer Skating Rink Childcare Center Livestock Market Water Sports Dealer Winter Sports Manufacturer Communications Device Resort Hotel Winery Multimedia Company Clothing Manufacturer Meat Processing Plant Juice/Beverage Wholesaler Aircraft Leasing Company Bioremediation Firm Communications Supplier Internet Services Clothing Retailer Data Warehousing Oil Blending Firm Health Food Supplements Bank Physician’s Practice Mgmt. Liquids Processing Shoe Factory Environmental Timber Information Technology Alternative Energy Tissue Engineering R&D
2. Plan your public relations. If you don’t coordinate your PR effort with your legal, financial and administrative needs you may find that you cannot successfully launch your offering. 3. Build a solid management team. You’ll need help during the offering period and investors want to see the short biographies of the people that will be responsible for running the company. 4. Resolve accounting issues early. Financial disclosure is critical to all forms of capital raising and doubly so in a public offering. Check SEC accounting regulations with your auditor. Cheap stock issues can be avoided by careful determination of fair market value when determining option exercise prices. License agreements must be structured with revenue recognition issues in mind. 5. Put your house in order. Put in-place new contracts for management, make certain all share issuances and other corporate actions are fully documented and implemented and review employee stock plans. 6. Determine your capital needs. Be sure to have enough authorized capital to meet your acquisition, option pool and capital needs for at least 24 months following a public offering. 7. Raise money in advance of your needs. The worst time to raise capital is when you must complete the offering by a specific time; short-term pressures can lead to poor long-term decisions. 8. Examine your board of directors. A public company needs different advice from its board than a private company. Add talent as well as two independent directors for compensation and audit committees. 9. Select your advisors well. Insure that all of your advisors understand both the registration process and your company’s vision for growth. 10. Avoid surprise. The worst nightmare for investors is surprise because it damages your credibility. Be up front with your problems since they invariably cause more damage the longer they remain hidden. Information on SSOs. The best book available on the registration and sales process for smaller stock offerings is Drew Field’s Direct Public Offerings, Sourcebooks, Inc., Naperville, IL, 1997. The author is both a lawyer and accountant by training but his passion is seeing younger companies successfully launched. You’ll find a questionnaire on his website at www.dfdpo.com that will help suggest if you’re a good candidate for one of these offerings and Drew is nearly always available to counsel entrepreneurs. He notes that “the SEC’s latest rules on electronic communications seem to have appropriately dealt with a company’s dual use, allowing (even encouraging) information about the business on the home page and others related to purposes apart from offering securities, while having a link to the pages with the announcement, registration, prospectus and purchase order.” The SCOR Report out of Dallas, TX reported the successes and failures of small stock offerings across the country and indicated state hurdles along with suggestions for making registrations. Run by Tom Stewart-Gordon at www.scor-report.com, this is a compilation of do’s and don’t for entrepreneurs using this instrument. Tom’s website provides a source of links for security offerings and provides information on: state security codes and regulations; accounting; attorneys, legislation; banks; entrepreneurial sites (including entreworld’s Helping Entrepreneurs Succeed); investor information; SEC links; taxes; SBA; etc. Addresses and telephone numbers of all state securities regulators are at www.nasdr.com. The Corporate Finance Institute in Bethesda, MD, put together instructions, forms and other material for making a filing in a book on SCOR. Brad Smith in Dallas, TX has filed registration statements for clients and found the process expedient and helpful if done right, but he felt too many entrepreneurs and service professionals alike unnecessarily delay a project (bradwsmith@aol.com). Tom Biggs at Vertex Capital maintains relations with many broker-dealers and sources of capital in a financial consultant’s network for startups (Biggs@cfl.it.com). The SEC has a kit for potential registrants that they will mail you by calling (202) 942 8088 and asking for “Publications” or you can go to the SEC website, www.sec.gov. The Government Accounting Office (GAO) has a free report that was compiled for the Senate Committee on Small Business entitled, Small Business, Efforts to Facilitate Equity Capital Formation, GAO/GGD-00-190, at (202) 512 6000 or their website, www.gao.gov. The GAO’s report covers types of capital, methods of solicitation; rules and regulations; fees; federal securities laws; use of the Internet; explanations of the exemptions, etc. State filing fees. State registration fees are a mare’s nest of minimums and maximums and usually are based upon a sliding scale depending upon the amount of the offering. Oregon is the lowest cost state starting at $25 and peaking at $500. Texas is the most expensive and costs $1,000 per million of the offering there. Internet-based offerings. Wit Brewing made the first Internet offering in 1995 with an appeal to beer lovers. Wit was organized by a former securities attorney and with its early Internet reputation of selling stock, eventually grew to become an investment-banking firm with substantial equity from firms like Goldman Sachs. Wit developed a list of interested investors and had a conventional broker-dealer follow up the leads. Advantages of a registered offering. Consider filing a registration statement with the SEC and demonstrate the possibility of funding through a public offering. Tropicana filed an S-1 for an IPO and was bought out by Pepsi three days later. Hull Financial filed a registration statement with a total company valuation at $460 million and was bought out by Goldman Sachs for $530 million instead. Going through the exercise of preparing a stock registration statement is usually a good idea for a company, even if it isn’t the alternative you eventually choose for funding. A stock registration puts your firm “in play” and lets potential investors know not only about your proposition but also the fact that if they don’t do something now you will soon be out of their reach. If they don’t invest in you or buy you out, it’s going to be too late. A prominent corporate attorney in Atlanta, GA regularly counsels clients to prepare a registration statement as a discipline and exercise in getting together the firm’s message and documentation. Sara Lee decided to remake itself into three divisions and focus upon only its largest markets and brands. Their food service unit, PYA/Monarch, was spun-off into a separate company. An S-1 was filed with the SEC for an IPO of $160 million for Monarch that valued the entire company at $800 million. Shortly after the filing, Sara Lee entered into negotiations with the Dutch grocery group, Ahold, and sold the company instead for $1.57 billion. They received nearly twice as much for the company with a direct sale than they would have had with an IPO. You don’t have to undergo the agonies of a declining stock market. While some small stock offerings list on exchanges such as NASDAQ or regional exchanges, our bias is to avoid listing until such time as the company uses the investment funds to develop real revenues and earnings, often a multi-year undertaking. Stock market listing requirements for NASDAQ can be found at www.nasdaq.com. V-One, a leading security infrastructure firm, saw its stock dip dangerously low on NASDAQ despite a string of government and commercial successes. You can’t correlate short-term stock market action with the longer-term developments of a company so don’t look for logic to dictate prices. An exchange listing for a stock can be a two-edged sword. In bull markets your shareholders are happy and you may be able to use the shares to acquire other companies. In bear markets, shareholders complain and many of your plans may go on permanent hold. Added SSO approaches. The Micro Angels in San Francisco use the concept of placing small investors in contact with interesting new companies looking for seed capital. Using a monthly meeting format, they sponsor intrastate and SCOR offerings in the plus and minus $500,000 range. The meetings allow investors to question the entrepreneurs, much like an IPO road show for larger offerings, and provide for a lively exchange of information. Aggregating nearly 500 investors and helping to fund 17 startups through 2002, the Micro Angels are focusing on green and sustainable companies, mostly in California. Check with Mark Perlmutter at www.sfmicroangels.org and his new organization, www.ExpertGreenAdvice.com. Chris Knight runs a securities consulting service for small stock offerings at www.dpocentral.com and many other service providers and broker-dealers have extensive experience with carrying them out. www.direct-issue.com organized a no-frills electronic marketplace to solicit transactions throughout Europe. While focused on financial experts, it represents a start in widening access to funding. Chapter 9—PR and Your Elevator Speech Amanda Rubinstein appeared on the television show MoneyHunt and made a concerted effort to introduce her kitty litter company to investors. Her special litter helped diagnose urinary tract disorder by a color change. At one of her appearances a few weeks later she was introduced to a wealthy individual who had seen her on the show and was also a cat lover. Within weeks, she had a $3.5 million investment. What you get from a public relations effort. PR is potentially the most powerful weapon you have in finding money. It’s better than having several venture capitalists as friends or a host of well-meaning advisors. Advertisements occasionally work but they don’t have the credibility or generate the interest that a good story can do for you. Ideally, if The Wall Street Journal, London Financial Times or the New York Times became interested in you and ran a story, you’d reach the widest possible audience of wealthy people in the most credible way possible. A good PR person can be worth their weight in gold and can help you shape your story while putting you in contact with reporters and publications where you have a chance to tell your story. If your budget is limited, you can probably do a lot yourself, often with local newspapers. Community papers are especially eager to run stories about people and new enterprises in their area, particularly if you have something unique. The bigger papers review the smaller ones in their territories and if the story is good enough, the large circulation press will do a story as well. Keep letting people know what you’re all about. At a nine year-olds’ soccer game in suburban Washington, D. C. two of the players’ fathers had gotten to know each other casually through their sidelines chatter. At a game one of the fathers wore a shirt that had the logo and name of his company embroidered on the pocket. The other father, a venture capitalist, asked what it meant and gave the entrepreneur a chance to briefly describe his technology and market. Piquing his interest, the venture capitalist suggested they meet the following week and explore detail plans for growth. They met, an investment was made, leading to several more funding rounds, and his company became a fast-growth reality. Two things are essential for something like the above to happen to you. The first is a way to let people know you’re in business. The second is that you’re able to explain what you’re all about and get someone excited in the few moments of casual contact that most of us can get. If no one knows about you and if you can’t articulate your proposition, nothing is going to happen in your search for capital. The first of the two is often a reflection of PR, and maybe as simple as the shirt you wear. The second is how you verbally convey your vision in a short time, your “elevator speech.” One component that we usually find missing from every business growth strategy is the one that may be most important to the young firm, their communications. The development of a profile with all key audiences (a “brand”) is just as important for the fledgling company as it is for the giant. No one is going to invest in you unless they learn about your company’s potential. How are you going about making this case? Learn about PR. Bill Gates, certainly one of the most successful CEOs in the world, always made himself and his staff accessible to the press. Microsoft, at least in the early days, seemed to get consistently positive coverage, a lesson for all of us. While checking out PR firms you will want to learn more about PR generally, and what it can do for you throughout your many phases of business life. PR can help attract capital but also customers, suppliers, employees, etc. One of the first places to learn is your public library, or perhaps your business-oriented bookstore. Marcia Yudkin has a paperback called 6 Steps to Free Publicity and the author is available as a telephone consultant to give you specific ideas for your company. Marcia is at www.yudkin.com/resources.htm and has a five-page listing of resources that includes tens of thousands of media outlets. The following is from her popular book: Ten ways to be timely: 1. What is new about your business? 2. What is different or distinctive about your business? 3. Do you have an event you could create or publicize? 4. Can you make your products or expertise relevant by piggybacking on current news? 5. Have you done or could you do some research to merit press coverage? 6. Could you sponsor an interesting contest or award? 7. Is there a holiday or anniversary that you could hook onto? 8. Is there a trend in the general population or some particular population that relates to your offerings? 9. Can you suggest a surprising twist on received opinion? 10. Can you provide a pretext for a light, witty report?
• Could your solution form a precedent for aiding people in other markets? • Is there a breakthrough that suggests previous beliefs may no longer hold? • Is there something that could form a trend for the future and suggest to people that they get on board? • Is there information that teaches a lesson or provides insights for other entrepreneurs or managers? • Can the essential message be boiled down into a couple of thoughts and sentences so a busy reporter can decide to look further instead of tossing it aside as too cumbersome and confusing? Are your points poignant enough so that people can remember them, possibly much later? PR validates your story. In terms of publicity, third-party recommendations carry far more weight than your releases. Simply put, verification in all of your steps by trust-worthy, third-party sources, is highly desirable, but when provided by the press becomes even more valuable. We had two favorable articles in the Wall Street Journal and an entire page in the business section of the Washington Post, simply by giving them information on something really interesting. Writing a note to the Post Publisher, Ben Bradley, complimenting the reporter, Bradley wrote back that in all of his years in journalism he could count on the fingers of one hand the number of times he had received a compliment on a reporter’s work. Identifying the reporters that work in your area and beginning to track their interests and their styles will go a long way in helping you to shape something that can get printed. Breakthrough Software Corporation received dramatic proof of a credibility difference when it spent $6,000 to advertise one of its programs and received 100 responses. A free favorable magazine review of the same program generated 900 responses. Capturing attention. Rahul Sonnad, the founder of Geodelic, an APP provider, started his presentation before a group of investors in the most pedestrian of fashions—reading the largely unintelligible firm description off of a Power Point slide. Largely lulling his audience to sleep in a couple of minutes he suddenly switched to a ukulele and began to sing his presentation based upon a few pictures. His audience lit up and his company became the most memorable anyone in that audience had ever seen. Writing in MarketScan, Michael Teachout suggests that correspondence that is a bit irreverent has a good chance of capturing an editor’s interest. He suggests that providing an edge to your message does the following: (1) gets attention among the thousands of e-mail pitches that a journalist receives; (2) can be intriguing and start a journalist looking into your story; (3) may promote a unique perspective; and (4) humanizes you and the situation, prompting a relationship. The Senior Writer for Fast Company, Ron Lieber, says the best PR pitch letter he ever received contained a number of personal notes, invited him to lunch and had a P.S. at the bottom, which researchers say always gets read. The Johns Hopkins University public relations office briefed a manufacturing trade magazine about some research being done by a couple of their engineering professors. The magazine ran a story on the work and before long the professors had almost 300 requests for more information. Two of those callers were entrepreneurs who took up the technology and formed a successful company around the Hopkins research, providing a source of income for both the professors and Hopkins. Marketing guru Martha Yudkin writes, “The makers of the game Trivial Pursuit had no advertising budget whatsoever. Instead, by sending sample games or just the cards to game-industry buyers, celebrities who were mentioned in the game, and disk jockeys, they created a stir that the media had to keep reporting. Consequently, sales reached 1.5 million in 1983, the year the game was introduced.” Directory: documents documents -> Concept stage documents -> Concept stage documents -> The great global switch-off documents -> Nonprofit grant application documents -> The Truth about the Rwandan Genocide documents -> Annual InStructional unit plan documents -> Chaos equipment included Download 1.2 Mb. Share with your friends:
|